How to Borrow Money from Non-Resident Indian or Person of Indian Origin

In India borrowing of money from NRI or Person of Indian Origin is governed by FEMA act, relevant rules and notifications issued by RBI

The borrowing of money can be classified into two categories

Borrowing in INR by persons other than companies in India

A person resident in India, not being a company incorporated in India, may borrow in INR from NRIs/PIOs after satisfying the following terms and conditions:

• Borrowing shall be only on a non-repatriation basis;
• The amount of loan should be received either by inward remittance from outside India or by debit to NRE/NRO/FCNR(B)/NRNR/NRSR account of the lender, maintained with an authorised dealer or an authorised bank in India;
• Period of loan shall not exceed 3 years;
• Rate of interest on the loan shall not be more than two per cent above Bank Rate prevailing on the date of availment of loan;
• Payment of interest and repayment of principal shall be made only to the NRO account of the lender.

Borrowing in INR by companies in India

A company incorporated in India may borrow in INR, on repatriation or non-repatriation basis, from NRIs/PIOs after satisfying the following terms and conditions

Borrowing company does not and shall not:

• Carry on agricultural/plantation/real estate business; or
• Trade in transferable development rights; or
• Act as Nidhi or Chit fund company.

Point to be noted: The borrowing company cannot start the above business in future.

Borrowing is by issuance of non-convertible debentures (NCDs)

• The issue of NCDs is made by public offer
• The rate of interest is not more than the prime lending rate of State Bank of India as on the date on which the resolution approving the issue is passed in the borrowing company’s General Body Meeting plus three per cent
• Period of loan shall not be less than three years
• If the borrowing is on repatriation basis then the percentage of NCDs issued to NRIs/PIOs to the total paid up value of all NCDs issued shall not exceed the ceiling prescribed for issue of equity shares/convertible debentures for foreign direct investment in India.
• Further, the funds towards borrowing should be received through inward remittance from outside India or by debit to NRE/FCNR (B) account of the investor maintained with an authorised dealer or an authorised bank in India;